Ofcom orders BT and Openreach separation

The decision has been driven by concerns the broadband giant has not addressed ‘competition concerns’

Ofcom has ordered BT to separate from Openreach following the broadband giant’s failure to address the telecommunication regulator’s ‘competition concerns.’

Openreach is a subsidiary of BT which maintains the UK’s broadband network, which is also used by rivals Sky, TalkTalk and Vodafone. It has often been criticised for working in the favour of BT. Ofcom in July made the decision to make both BT and Openreach more independent, but not wholly separate, which drew criticism from major rivals.

Ofcom required BT to provide proposals which would address these concerns as part of its decision. However, it claims BT has not done this, which has driven the latest proposal. BT has fallen short of addressing how much influence BT Group executives would have on Openreach, according to Ofcom.

A spokesperson said: “Ofcom is pressing ahead with its plans to improve broadband and telephone services for people across the country, pursuing better service quality and encouraging greater investment in networks. Creating a more independent Openreach – which works in the interest of all providers, not just BT – is an important part of achieving this.

“We are disappointed that BT has not yet come forward with proposals that meet our competition concerns. Some progress has been made, but this has not been enough, and action is required now to deliver better outcomes for phone and broadband users.

“Our current view is still that an effective and robust form of legal separation, with Openreach as a wholly-owned subsidiary of BT, is likely to achieve the greatest improvements for everyone in the shortest amount of time. Therefore, this is the approach with which we are minded to proceed.”

Ofcom will put its proposal towards the European Commission. This includes making Openreach its own distinct company with its own board. Members would include non-executive directors and a chairman not affiliated with BT in any way. A public consultation is expected to take place early next year.

Response

The decision has been described as ‘long overdue’ by many in the industry. Former TalkTalk director of wholesale Andy Hollingsworth said: “Going forward it will give transparency for infrastructure investment, R&D and a cost base equitable to all service providers. Sadly the U.K. broadband speeds lag behind the majority of Europe.

“Furthermore the superfast fibre rollout only delivers to the local cabinet, which is often more than a mile away from the customer premise, and therefore speed declines when arriving at the customer premise – unlike countries like Spain and Japan that deliver over 60% super-fast fibre right to the door.”

CCS Insight principal analyst Kester Mann added: “Today’s news shows that Ofcom remains hugely concerned over BT’s ability to satisfy its competition concerns. It again highlights clear flaws in the existing Openreach model and a worry that UK broadband deployment could be restricted without serious change.

“The move toward legal separation and greater independence will bring important benefits to companies like Sky and TalkTalk in the long-term. Today’s announcement represents just the next stage in a long and protracted issue. Expect further lobbying from all parties and old arguments to be recycled. In the interest of stability and market certainty, the sooner a final outcome can be reached the better.”